Improving the 1040 process by applying lean principles: a case study

The purpose of this paper is to investigate a subject accounting firm’s existing workflow processes for preparing individual tax returns with an emphasis on identifying predominant areas of waste.

Specific Quality and Lean tools were applied to qualitative data secured from on-site visits to the firm. Quantitative data analysis of productivity measures was performed to identify additional sources of muda (waste) as well as validate the findings from the qualitative analysis. Corrective actions were recommended as applicable.

This case study of the subject firm identifies predominant wastes in the individual tax return process as defects and waiting. The authors propose that these categories of waste (waiting and defect) may indeed be the predominant forms of waste in service organizations and require further research.

At least two limitations exist. The first was the inability to capture exact cycle times for each of the process steps. A second limitation was that the data on staff performance were gathered via interview rather than through direct observation.

Individual income tax return preparation (Form 1040) provides a significant revenue stream for many accounting firms. Managing the processes involved in an effective and timely fashion is critical to profitability. Additionally, other service industries, including financial and accounting firms of similar size or function, may find these areas of waste relevant and adopt similar strategies for eliminating or reducing them in service-processes.

Negligible literature exists concerning wastes in accounting firms. However, accounting firms in the USA earn an average of more than 50 percent of their total fees from tax services, including income tax return preparation.